Bristol Myers Squibb – What’s Left After Clopidogrel?

Over the past year, some of my writing has focused on the pipelines of many big pharmaceutical players, including GSK, JNJ, ABT, MRK, LLY, SNY, NVS, FRX and PFE. I noted that the patent cliff is going to be steep in my PFE article well before a NYTs article came out last week. The ‘blockbuster’ model is over for pharma. There will, of course, be mega drugs in the cancer field over the coming years, but therapy is going to get much more specialized. As a side note, when I was working at a big pharma 8 years ago, we had a big meeting with the heads of research and I asked about specialized medicine (Gaucher’s disease (GENZ), Pompe disease (GENZ), Phenylketonuria (BMRN) and combo pills (Vytorin (MRK), Janumet (BMY), etc. I was told that it would not happen to any appreciable extent. Well, hindsight is always 20//20. Pharma is moving beyond the blockbuster model. Companies are refining their approach toward personalized medicine and forming more partnerships. Using genetic or other tests, the plan is to sell new drugs not to millions and millions of people, but to those who would most clearly benefit. Companies with the ability to use these genetic tests (GXDX which we owned and was bought by NVS) or companies with orphan drugs or smaller incidence diseases where there is a niche market.

Bristol Myers Squibb (BMY) is attempting to do so with its purchase of biotechnology firm Medarex (2009) and Zymogenetics (2010), as part of the company’s "String of Pearls" strategy of alliances, partnerships and acquisitions. With these acquisitions, they have a pipeline stocked with cancer therapeutics, anti-virals, and a few other therapeutic areas.

On the stock and finances, BMY has a P/E under 15, a dividend yield of about 5%, and revenue of $11 per share.BMY is actually worth something on its own today with a book value of over $9 per share. BMY forecasts low- to mid single-digit revenue growth in 2011. The pharma giant expects adjusted 2011 earnings in the range of 2.10-$2.20 per share. The Zacks Consensus Estimate for 2011 is $2.24. BMY also reaffirmed its minimum adjusted earnings guidance of $1.95 for 2013 (the first full year for Bristol-Myers after Plavix goes generic).

Table 1. Drug Pipeline and Revenues.

The company does have some considerable headwinds coming up as Avapro and Plavix come off patent in March and May 2012, respectively ($1.2B and $6.7B. respectively, or 42% of its total revenues of $19.5 billion). What’s under the hood at BMY?

Late stage compounds

Ipilimumab - Ipilimumab is a fully human antibody that binds to CTLA-4 (cytotoxic T lymphocyte-associated antigen 4), a molecule on Helper T cells that is believed to play a critical role in regulating natural immune responses. The absence or presence of CTLA-4 can augment or suppress the immune system’s T-cell response in fighting disease. Ipilimumab is designed to block the activity of CTLA-4 (CTLA4 transmits an inhibitory signal to T cells), thereby sustaining an active immune response in its attack on cancer cells. Ipilimumab has demonstrated significant activity as a single agent and in combination with anticancer vaccines, and an ongoing phase III study in melanoma will provide the first randomized test of its activity.

A number of challenges remain. Choosing the optimal dose is still in the works , and it is unknown whether the doses of ipilimumab antibody currently used saturate the CTLA-4 binding sites on effector T-cells in vivo. Secondly, the main Ipilimumab trial included an ‘unconventional’ control arm, which could raise eyes at the FDA. Instead of comparing Bristol’s ipilimumab to a placebo or to standard treatments (there are few options in melanoma), the trial compared ipilimumab to a vaccine called gp100). Patients who got ipilimumab lived longer and melanoma researchers suggest that ipilimumab is effective, and the vaccine essentially acted as a placebo. But the FDA may ask: How do researchers know that the vaccine is not toxic, and that this–not effects of ipilimumab–accounted for the difference in survival between the two patient groups? That remains the question of the hour.

Belatacept – Belatacept is intended to provide extended graft survival while limiting the toxicity generated by standard immune suppressing regimens, such as calcineurin inhibitors (cyclosporin). Not a huge market maker.

Apixaban- Marketed with Pfizer, BMY is looking to apixaban to make up some of the clopidogrel revenue. Apixaban is a direct factor Xa inhibitor (like JNJ/Bayer’s rivaroxaban). It is presently undergoing phase III trials in the prevention of venous thromboembolism.

Necitumumab – Necitumumab (IMC-11F8), under development by ImClone Systems (now LLY) in collaboration with BMY, is a fully human IgG1 mAb targeting the epidermal growth factor receptor (EGFR), for the potential intravenous treatment of cancer, in particular NSCLC. Preliminary data were presented after patients had received a mean of eight doses of necitumumab over a mean 18.8 weeks of treatment. The median follow-up time was 11 months but median progression-free survival had not been reached. Among the 40 evaluable patients, the objective response rate was 68% and all of the remaining 13 patients experienced disease stabilization for a minimum of the first 8 weeks of treatment. With that, two phase III, randomized, open-label, active-controlled, parallel-group-assignment, multicenter clinical trials of necitumumab were ongoing (INSPIRE and SQUIRE).

The INSPIRE and SQUIRE trials were looking at patients with stage IV non-squamous NSCLC. The primary endpoint in the INSPIRE trial was overall survival time, assessed over ~ 30 months whle SQUIRE was overall survival time assessed over 31 mo. Completion is scheduled for May 2012 for INSPIRE and July 2013 for SQUIRE.

Dapagliflozin – Dapagliflozin inhibits subtype 2 of the sodium-glucose transport proteins (SGLT2), which is responsible for at least 90% of the glucose reabsorption in the kidney. Blocking this transporter causes blood glucose to be eliminated through the urine. This is a very interesting target and is one of the newer mechanisms of action (ARNA and a few others are out there, but very early on in discovery/development). This drug, if approved, could also be used in a combination treatment with metformin (undergoing trials now). What is known thusfar from the phase III multi-center clinical trial that included patients with poorly controlled T2DM who were receiving metformin, the combination of the two drugs appears advantageous.

The question remains will all of these keep BMY on the same revenue track? I think there is more consolidation coming for the industry, and BMY is a perfect takeover candidate for one of the big players especialy AZN and LLY as the have several co-marketing drugs. Pharma is in a world of hurt, and it is my vision that the big players become the ‘hub’ and biotechs feed the engines, but the hubs will be fewer and fewer in the coming years!

I advocate for a nice one of two revenue producing plays. First is a short term play, buying the June 2011 $25-27 bull call spread for $1.14 and selling the June 2011 $25 puts for $0.77. That is a net 37c on the $2 spread that is all ITM. The other has a bit more cost, but buying the stock here and selling the Jan 2012 $25 call and puts for $4.35. That is a nice 17% if called away by the end of the year. Both require very little time in maintaining the position. I am not an advocate of any pharma long term that has expiring drugs that make up large portions of their revenue unless they can support them with their pipeline. BMY, like LLY, FRX and PFE is not one I can jump on after this year.